Pipeline construction on track

Africa Analysis, Ltd.
March 19, 2004


Iranian ambassador to Armenia Mohammad Farhad Koleini has disclosed
that the Iranian oil and gas minister is expected to visit Armenia
soon to conclude a final agreement on the construction of the
Iran-Armenia gas pipeline. Construction of the pipeline is scheduled
to start soon, to be completed within a year or two. The Armenians
are very keen on the pipeline, which will become one of the main
alternative sources of fuel for Armenia after the closure of its
nuclear power plant. The Russians also consider the construction of a
gas pipeline from Iran to Armenia to be in their interest. At
present, Russia is consulting with Armenia on a feasibility study
since there is a possibility that the Russian company Gazprom may
operate part of the pipeline through Armenia in the future.

The Iran-Armenia gas pipeline has been on the drawing board since
1992. In addition to the two main participants in the project, other
interested parties include Russia, Turkmenistan, Ukraine, countries
in the European Union, and China. The European Bank for
Reconstruction and Development has said that it is ready to finance
the project.

About $ 1bn is needed to replace the capacity of the nuclear plant.
At the moment only the European Union has said that it is ready to
put 100m into a special fund for the project. But the EU will only
pay the money to create alternative energy supply sources once the
Armenian government closes its nuclear plant, which the EU has been
insisting on.

It is hoped that the EU’s decision will prompt other foreign
investors to consider injecting funds into the project.

Armenia and Iran signed an agreement in 1995 to establish the route
of the pipeline, which stretches along 141km, with 41km in Armenia
and 100km in Iran. The agreement also sets the price for gas to be
transported through the pipeline at $ 84 per 1,000 cubic metres. The
cost of the project is estimated at $ 120m.

The pipeline may be extended to the Armenian-Georgian border. In this
case, the cost of the project will increase to $ 306m and the
pipeline will be 550km long and have a capacity of 4.5 billion cubic
meters a year.